Vanguard investment outside ISA

btcp

I used my annual ISA allowance and wondering what’s my tax obligation on additional investment,  if I open a regular Vanguard account? I though that when dealing with stocks/funds you only pay capital gain tax if you sell them. You also only need to report it if you are over an annual allowance. On Vanguard website it says that an account holder may be likeable for capital gains tax or income tax. How the income tax is related to it? 

masonic

You would pay income tax on any dividends over your dividend allowance.

kuratowski

And your taxable dividends do include the ones rolled up automatically within ACC funds.

https://monevator.com/income-tax-on-accumulation-unit/

And there is excess reportable income for ETFs.

https://monevator.com/excess-reportable-income/

btcp

masonic said:

You would pay income tax on any dividends over your dividend allowance.

Thanks. Is it depending on the fund of all of them pay dividends? I am investing in VLS mainly.

btcp

kuratowski said:

And your taxable dividends do include the ones rolled up automatically within ACC funds.

https://monevator.com/income-tax-on-accumulation-unit/

And there is excess reportable income for ETFs.

https://monevator.com/excess-reportable-income/

Great thanks for the links. It looks like more hassle than I thought of... maybe it wasn’t a good idea to go outside ISA and it’s just easier to keep the cash or pay into mortgage. 

kuratowski

It certainly makes you appreciate tax wrappers

It's mostly about good record-keeping.  The dividend allowance is £2k per year, so there will only be tax to pay if your portfolio is quite large.  If you stick to UK domiciled funds, you don't need to worry about ERI.  And if you use INC units, instead of ACC, for unwrapped investments it makes it easier to keep track.

One extra complication is that bond funds (or funds invested in mostly bonds like VLS20) will pay interest, rather than dividends, and that goes against the normal personal savings allowance for interest, that you're probably familiar with.

dunstonh

And remember to buy income units in the GIA and not Acc units. It will make your life a lot easier.

masonic

btcp said:

Thanks. Is it depending on the fund of all of them pay dividends? I am investing in VLS mainly.

btcp said:

Great thanks for the links. It looks like more hassle than I thought of... maybe it wasn’t a good idea to go outside ISA and it’s just easier to keep the cash or pay into mortgage. 

For funds like VLS it is very straightforward if you opt for Inc units as dunstonh suggests. Most platforms provide a consolidated tax statement after the end of each tax year showing all of your dividends/interest. Unless you plan to have a very large holding outside the ISA it is unlikely there will be any tax to pay, and unless you fill out a tax return or have some tax to pay you wouldn't need to declare anything to HMRC.

eskbanker

You might also wish to consider using a GIA temporarily and then shifting up to £20K worth of the investments into the ISA in ten months time, or, depending on your age and likely timescales for accessing the investments, using a SIPP as another tax wrapper?

btcp

masonic said:

For funds like VLS it is very straightforward if you opt for Inc units as dunstonh suggests. Most platforms provide a consolidated tax statement after the end of each tax year showing all of your dividends/interest. Unless you plan to have a very large holding outside the ISA it is unlikely there will be any tax to pay, and unless you fill out a tax return or have some tax to pay you wouldn't need to declare anything to HMRC.

Maybe I’ll try with VLS then, if they give a tax statement it sounds straightforward. We are lacking about 20-30 k not a big amount. I do fill out tax return though, maybe I could just copy the figures from the statement Vanguard sends me. 

masonic

btcp said:

masonic said:

For funds like VLS it is very straightforward if you opt for Inc units as dunstonh suggests. Most platforms provide a consolidated tax statement after the end of each tax year showing all of your dividends/interest. Unless you plan to have a very large holding outside the ISA it is unlikely there will be any tax to pay, and unless you fill out a tax return or have some tax to pay you wouldn't need to declare anything to HMRC.

Maybe I’ll try with VLS then, if they give a tax statement it sounds straightforward. We are lacking about 20-30 k not a big amount. I do fill out tax return though, maybe I could just copy the figures from the statement Vanguard sends me. 

It's not really any harder than dealing with savings interest, it just means another couple of boxes in the return to fill in.